Neelum-Jhelum in trouble

The much touted Neelum-Jhelum hydropower project has hit a serious snag in recent months. The trouble is financial, with the project cost having increased by 52 percent. The government has yet to decide what mechanism to use to meet the gap in finance. The cost of the 969MW project has increased to Rs418 billion from the estimated Rs274 billion approved in the last years of the PPP government. What is clear is that while the PML-N government has lauded the project, it failed to resolve the question of how to finance it when the federal budget was announced only a month ago. The revised estimates are now awaiting approval at the Executive Committee of the National Economic Council (Ecnec). On Monday Finance Minister Ishaq Dar held a meeting to review the finances of the Neelum-Jhelum project. Wapda suggested two options of closing the finance gap: invite investors or make the Chinese constructor a partner of the project. The meeting rejected the idea of privatising the project to meet the extra costs but decided to issue Rs100 billion in Sukuk bonds to meet the gap. A Chinese bank is set to lend $576 million and some Middle Eastern lenders have also been approached – but the absence of a sovereign guarantee appears to be an issue.
The Neelum-Jhelum project has now suffered a decade of delays with a number of media orchestrated launches despite the fact that the project financing is yet to be finalised. The fact that private investment in the project has been proposed at such a late stage belies belief. Already, it appears that at least four major cost components worth over Rs100 billion have yet to have been added to the project cost. The PML-N government may want us to believe that it is serious about getting the project running, but the matter seems to be about paying lip service rather than coming up with solutions. While the project head has claimed that 72 percent of the physical work on the project is complete, there appears to be little reason to believe this. When the Neelum-Jhelum project was proposed in 2007 the cost was estimated to be Rs130 billion, with half of the finance set to be raised through the controversial Neelum-Jhelum Surcharge. Eight years later, the project is set to cost 2.5 times the original estimate, with no guarantee that the current estimate will be the final one. With issues with the Neelum-Jhelum contractor still on the table, when the project will be completed is anyone’s guess.